Overdue invoices can be a major issue for SMEs, hampering cashflow and even threatening operations. Its scale in this region is unknown, but anecdotally many businesses confirm it’s a challenge. Even if you’re fortunate enough for it to not cause major problems, it’s probable your company expends time and effort chasing payments that could be better spent elsewhere.

Here are six steps to take.

  1. Only do business with people you trust
    If a customer is new, research them. Review their client portfolio, read testimonials, see if they belong to a larger group or national/industrial organisation, and – if possible – check their creditworthiness.

    If you have doubts, consider declining their custom. As a minimum, calculate the impact of their order going unpaid.

  2. Make sure they sign a contract before accepting an order

    This helps your legal position if the dispute ever reaches court. Your terms should include:

    – The length of any credit period (ie how long you’re willing to wait for payment). This should be 30 days. The culture here can sometimes be for longer – three months, for example – but you don’t have to adopt this.

    – A clause outlining your right to charge interest for late payment, if you want to.

    In the MENA region, contracts should be governed by the Dubai International Financial Centre (DIFC) Laws, and subject to the jurisdiction of the DIFC Courts.

  3. Consider upfront payment

    Many businesses only act on this basis. Other larger organisations often request a bond to be lodged with them. These measures can help alleviate potential financial impacts later down the line. SMEs are just as entitled to these terms as any other business.

  4. Be prompt with invoices and reminders

    It may sound obvious, but some businesses don’t help themselves by, for example, leaving all invoicing to a month-end. Make sure your invoice is accurate and thorough – mistakes can be costly later, as they could give the customer grounds to delay payment.

    If the payment date passes, send a statement: what’s owed and from when. If this doesn’t work, send a reminder, then a phone call, then a final letter setting out the steps you’ll take to recover the debt. Remain polite and factual – even if you feel aggrieved, aggression could turn a customer against you completely.

  5. Take further action

    If things continue beyond a final letter, the UAE offers three options.

    Going to court

    Ideally, the Small Claims Tribunal of the DIFC Courts. It hears cases where both parties signed a contract agreeing to the DIFC Courts jurisdiction (hence point 2), and deals with claims up to AED 100,000 (AED 500,000 if all parties agree in writing), for a fee of two percent.

    Hiring a debt collection agency

    While going to court can be daunting, the fees charged by collection agencies can be considerable. Some request commissions up to 50% of the amount to be recovered.

    Using Dubai’s Centre for Amicable Settlement of Disputes
    This body offers an integrated package of services for quick and cost-effective resolution of disputes. If it can’t get both sides to agree a settlement, the case goes to the courts.

 

Disclaimer:
“The opinions expressed within this article are generic. Mashreq is not responsible for the accuracy, completeness, suitability or validity of any information on this article. The information, facts or opinions appearing in this article do not reflect the views of Mashreq. Mashreq does not assume any responsibility or liability for the same.”

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